Decoding Closing Costs

Have you found your dream home or are you looking to refinance? Whether you're a first-time homebuyer or a seasoned homeowner, the final stretch of your mortgage journey involves understanding closing costs—those often-mysterious fees that may catch you by surprise. What exactly are closing costs?

Closing costs are the behind-the-scenes expenses that make your home purchase or refinance official. Typically ranging from 2% to 6% of your loan amount, these fees cover a variety of critical services that transform a property transaction from a dream to reality.

Who Pays Closing Costs?

Both homebuyers and sellers may pay closing costs on a mortgage—in some instances, buyers may pay the majority. However, sellers could pay up to 6% of the home’s sale price, but the exact percentage will depend on a variety of factors.

Factors Affecting Closing Costs

1. Location: Closing costs can differ substantially due to the location of the home. In Indiana, they may be about 0.9% of the home’s sale price.
2. Loan Amount: Many closing costs are calculated as a percentage of the loan amount. Generally, the larger the loan, the higher the closing costs.
3. Type of Loan: Different loan types may have varying closing cost structures. For instance, refinancing costs are typically lower than those for new home purchases.
4. Property Value: Some fees, such as title insurance, may be based on the property's value rather than the loan amount.

Common Closing Cost Components

Here is a comprehensive list of closing costs for sellers and homebuyers:

Homebuyers

• Escrow fees
• Home appraisal
• Credit report fee
• Title search and insurance
• Origination fee
• Recording fee
• Mortgage points
• Prepaid interest

Sellers

• Title fees
• Property taxes
• HOA fees, if applicable
• Mortgage payoff
• Seller concessions
  
  

Negotiating and Reducing Closing Costs

While many closing costs are fixed, some may be negotiable. Here are two common strategies to potentially lower your closing costs:

1. Negotiate with the seller: For home purchases, you may be able to negotiate for the seller to pay some of your closing costs.
2. Timing your closing: Strategically planning your closing date could lower some upfront fees.

Understanding how closing costs are calculated empowers you to make informed decisions when buying a home or refinancing. While these costs are a necessary part of the process, being prepared and exploring your options can help you manage this expense effectively. Remember, at Ruoff Mortgage, we're here to guide you through every step of your home financing journey, including providing a clear breakdown of your closing costs well before your closing date. Contact one of our loan officers today!